REPORT: Greece needs €95 billion in debt relief to avoid permanent depression — twice as much as the IMF says

Demonstrators at a rally in Athens, Greece, on June 29.
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Greece may have a bailout deal, but the debt relief the country actually needs is bigger than any of the participants is acknowledging — and without it, the country will be stuck in a semipermanent depression.

That's according to the National Institute of Economic and Social Research (NIESR).

"If the 'troika' continue to insist on unrealistic fiscal targets, the Greek economy will remain in depression," NIESR's new paper says.

Given the economic chaos of recent months and the austerity measures imposed under the new bailout deal, the report suggests that Greek GDP will fall to less than 70% of what it was at the precrisis peak.

NIESR
That means that nearly a third of Greece's economic output has been wiped away, with little sign of any genuine recovery on the horizon.

Simon Kirby, head of macroeconomic modelling at NIESR, says a "permanent fiscal transfer" from the healthier eurozone countries is needed if Greece is to have any hope of reducing its debt to 120% of GDP by 2020, as was originally envisioned.

The debt relief would actually represent only a very small transfer from the rest of the eurozone, according to the authors:

The fiscal transfer from Euro Area members required to achieve this would represent 1 per cent of Euro Area GDP in one year. As it would be spread over many years and across the membership, we argue the impact on other Euro Area members would be minimal, and that this fiscal transfer is necessary if Euro Area membership is to be maintained.

That won't convince many of the finance ministers across Europe, who seem to be particularly concerned about setting a precedent with Greece and preventing moral hazard problems in the rest of the eurozone. Their logic follows that if Greece is able to get significant debt relief, other countries will be less worried about making their own spending sustainable in the future.

Though the authors of the NIESR paper assume that Greece stays in the euro, they acknowledge "there may come a point where the calculus simply no longer favours remaining within the Euro Area."